Uzbek Businesses Stung by Tax Rise

Small-scale businesspeople in Uzbekistan say new tax rules introduced in late August will drive them to bankruptcy or force them to operate in the black economy.

The new regulations unveiled by the finance ministry cover the “unified tax payment”, a type of profit tax payable by smaller companies in the retail and service sectors. At present, the tax varies from four to seven per cent of profits earned, but the new rules mean it will be a fixed sum.

Companies will be assigned a fixed monthly rate calculated as a multiple of the minimum official wage. Depending on the size of the firm, the multiple will be a factor of between three and ten, so with the minimum wage currently equal to 28 US dollars at the official exchange rate, companies could be charged up to 280 dollars a month.

Although the regulations have not come into force and are still under consideration at the justice ministry, Uzbekistan’s business community is alarmed.

Smaller businesses earn so little that some could end up paying more in tax than their earn in gross income.

“Until now, I have been paying 216 dollars every six months in the unified tax payment, whereas now I’ll have to pay about 280. dollars a month – eight times more,” Svetlana, who owns a small beauty salon in the capital Tashkent, said.

To avoid bankruptcy, Svetlana has decided to close her salon and offer her beauty services from home, thus avoiding taxes altogether.

A Tashkent businessman who gave his first name as Abdurauf has also decided to disappear from the taxman’s radar screen. He said it was a hard decision, taken after only had spoken to the tax service and finance ministry.

“I tried to clarify it… but they told me they wouldn’t comment on the regulations. They probably don’t know what to do themselves,” he said.

The finance ministry is clearly hoping the new structure will raise more predictable and hopefully larger sums from small businesses.

Other experts warn that this might not work.

“It’s going to have disappointing results for the government,” a tax consultant said. “Tax receipts will fall, and this will be followed by growing unemployment.”

Another tax consultant said the unified tax payment, introduced in 2005, had been a flexible instrument that allowed businesses to expand, and made it possible for small-scale entrepreneurs to have more than one firm on the go.

“This new move will remove the stimulating role played by the unified tax,” he said. “It will place an enormous tax burden on small businesses with quite modest turnover and profits.”

This article was produced as part of IWPR’s News Briefing Central Asia output, funded by the National Endowment for Democracy.